Be Sure To Check Out Jamna Auto Industries Limited (NSE:JAMNAAUTO) Before It Goes Ex-Dividend

Jamna Auto Industries Limited (NSE:JAMNAAUTO) is about to trade ex-dividend in the next 3 days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Jamna Auto Industries' shares on or after the 22nd of September will not receive the dividend, which will be paid on the 29th of October.

The company's next dividend payment will be ₹1.50 per share. Last year, in total, the company distributed ₹2.50 to shareholders. Last year's total dividend payments show that Jamna Auto Industries has a trailing yield of 2.0% on the current share price of ₹126.96. If you buy this business for its dividend, you should have an idea of whether Jamna Auto Industries's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Jamna Auto Industries's payout ratio is modest, at just 43% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 33% of its free cash flow in the past year.

It's positive to see that Jamna Auto Industries's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Check out our latest analysis for Jamna Auto Industries

Click here to see how much of its profit Jamna Auto Industries paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Jamna Auto Industries's earnings have been skyrocketing, up 26% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Jamna Auto Industries has delivered 16% dividend growth per year on average over the past 10 years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

From a dividend perspective, should investors buy or avoid Jamna Auto Industries? Jamna Auto Industries has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Jamna Auto Industries, and we would prioritise taking a closer look at it.

While it's tempting to invest in Jamna Auto Industries for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 1 warning sign with Jamna Auto Industries and understanding them should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.